Govt likely to borrow Rs 80k cr more in FY15

Government bonds have failed to maintain the gains recorded on Friday, as the Street is expecting additional market borrowings. The new government might borrow an additional amount of up to Rs 80,000 crore from the market, and this has led to concern in the bond market.

On Friday, when the results of the Lok Sabha elections were announced, the yield on the 10-year bond initially dropped to 8.68 per cent, closing at 8.83 per cent.

“There are subsidies of Rs 60,000-80,000 crore pertaining to fuel and fertilisers, which weren’t provided by the previous government. These may be provided by the new government this financial year, either through additional market borrowings or some other route. The bond market has anticipated additional borrowing by the government, due to which the yield on the 10-year bond has not softened as was expected, after a stable government came to power,” said Badrish Kulhalli, head of fixed income at HDFC Life.

In the 2014-15 interim Budget, gross market borrowings for this financial year were pegged at Rs 5.97 lakh crore, while net market borrowings were estimated at Rs 4.57 lakh crore. The Street expects these figures to be tweaked in the full 2014-15 Budget, expected to be presented in mid-June.

“The system is anticipating excess market borrowings by the government — Rs 60,000-70,000 crore. The equity market had a great salutary effect on the prospects of the new government. The bond market, too, had that effect, but lately, yields hardened. This is due to market expectations of additional borrowings. Excess borrowing is a normal phenomenon that the market has seen through the past few years. Ideally, the Budget indicates these additional borrowings. But these can even be announced after the Budget,” said S K Dubey, managing director, PNB Gilts.

According to the issuance calendar of marketable dated securities, the Reserve Bank of India will auctions bonds worth Rs 3.68 lakh crore between April and September.

“The yields are higher due to fear of additional borrowing. The yield on the 10-year bond is seen breaching the nine-per-cent mark if the government borrows more. We already have bond auctions every week,” said Debendra Kumar Dash, associate vice-president (treasury), Development Credit Bank.

On Monday, the yield on the 10-year bond closed at 8.86 per cent, compared with its previous close of 8.83 per cent.